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FTC left red-faced following pitiful closing argument vs Qualcomm

A thumping opinion piece from experienced legal columnist Rob Enderle this week, writing for ECT News Network, provided some highly contentious fly-on-the-wall coverage of the extensive legal proceedings between Qualcomm and the Federal Trade Commission (FTC).

He slammed invalidated evidence, shamed shoddy attorneys, and summarized the case as two bullies (Apple and Intel) approaching a smaller kid (Qualcomm) and demanding his lunch money, only to complain when the smaller kid decides to stand his ground. Without specifically stating so, the lengthy discussion of events within the court room combine to imply that Qualcomm could be let off the hook.

It comes a week after Qualcomm and Apple presented closing arguments, with Qualcomm stating a strong case regarding allegations about its business practices, but it would be willing to accept a deal to “remove this risk from the table.” The ECT News Network describes these closing arguments first hand, “During the close, it felt as though the FTC attorney hadn’t really prepared, hadn’t organized her evidence into what I would have thought to be an obvious framework, and pretty much just called Qualcomm names with little to back up her claims.”

The whole premise of these closing statements, Enderle states, is that the FTC was supposed to establish three pillars of proof relating to Qualcomm’s monopolistic position, then prove it abused this position, then prove this behavior negatively impacted the market. In short, the report claims the FTC failed to do anything of the sort. “The FTC argued that Qualcomm illegally tied its patent portfolio to its modem sales, but it presented no evidence that Qualcomm ever cut modem supply to a buyer that didn’t have a patent license.”

While heavy on Faultline Online Reporter-esque opinion, the write up was much too light on technology for our liking. Nevertheless, it provided an important glimpse into the implications that the FTC has effectively been working for Apple. “The FTC seemed to be saying that any company that could resist Apple’s bullying clearly was abusing its power. I seriously thought that the US legal system was starting to look as though it was founded on concepts you’d more likely see in a third-world country, where the laws are whatever the powerful say they are,” writes Enderle.

One of our wishes for 2019 was to never have to read another word about Apple suing anyone. The once innovative company is now synonymous with suing its supply line, Samsung being another, and as a result risks pushing Qualcomm into an arranged marriage with Broadcom in the process – a type of globalization the industry could really do without. Home court decisions by Californian courts have distorted the truth and the marketplace.

Enter the FTC’s impeachable expert, University of California professor of economics Carl Shapiro, who was a major figure in the AT&T-Time Warner trial. “Shapiro concluded that Qualcomm’s business model must be illegal, although his view appeared to have no connection to any facts. He offered no research or empirical evidence – just one guy’s ideas about how the world ought to work. More importantly, he made it clear that anyone who disagreed with him – including judges – was an idiot,” is Enderle’s damning conclusion of that testimony. That clearly backfired for the FTC.

He also described the Qualcomm corner to provide some balance, “The Qualcomm close was far from the best I’ve seen – likely because the FTC was so disjointed that it forced a less-organized response – but it was massively better executed than what the FTC did. Compared to the FTC using one of its most junior folks, Qualcomm used one of its most senior, because the company thought the case was that important.”

Perhaps Enderle should take a trip over to China and produce a copycat report concerning a Chinese court issuing two injunctions against several iPhone models, which it said recently violate two Qualcomm patents.

Qualcomm CEO Steve Mollenkopf said on the company’s Q1 earnings call last week, “We continue to believe that over the course of 2019, we will reach a resolution on the key outstanding issues in our disputes with Apple through settlement or litigation, and we are prepared for both outcomes.” He added that his firm remains engaged in settlement talks with the US FTC.

In the first fiscal quarter, Qualcomm reported lackluster results, hit by weakness in the smartphone market, particularly in China. It announced a 22% fall in chip shipments, year-on-year, to 186 million units, and a 20% drop in revenue to $4.8 billion. However, it returned to profit, with net income of $1.1 billion compared to a loss of $6 billion n in fiscal Q1 2018.

At Apple, results were also downbeat, with China a major factor. Apple had warned its shareholders of a poor quarter before the Christmas period, when it said sales for the critical holiday quarter would be about $84 billion, rather than the figure of $89 billion to $93 billion that had been predicted.

In fact, fourth quarter sales were down 5% year-on-year to $84.3 billion, mainly because of challenges in China and disappointing iPhone sales. Net income was also down 5%, to $19.7 billion. Sales in the Greater China region were down by $4.8 billion compared to the first quarter of 2018, with declines across iPhone, Mac and iPad, CEO Tim Cook said. “Most of the shortfall relative to our original guidance, and over 100% of our worldwide year-over-year revenue decline, was driven by our performance in Greater China,” he admitted.

The bottom line which we, among others, have highlighted on multiple occasions is that by relentlessly going after Qualcomm, the US risks gifting China the lead in 5G.

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